As the name suggests, the Edelman trust barometer is an annual survey measuring trust and credibility across a number of institutions, sectors and geographies.
Now in its 18th year, they survey more than 33,000 respondents across 28 countries. This year’s findings, published in January, didn’t make especially pleasant reading.
The UK remains subdued with distrust across the board. Social media companies have lost the trust of most of the public (and that was before the Facebook data leaks hit the headlines last month), and Britons are becoming more pessimistic about their economic outlook. Trust within various business sectors has flatlined, and right at the bottom of the table we find financial services, retaining the prize for the least trusted sector of them all.
Put these findings alongside the current generational low for the UK household savings ratio and you start to understand why the FCA's recent asset management market study (AMMS) is such an important piece of work. Folk are not saving enough, and while there are many reasons behind this, the lack of trust in financial services is a serious problem.
With a flagrant disregard for anyone battling tax year end commitments, the FCA published the first set of final rules from the AMMS on 5 April.
Full details and analysis of the final rules can be found here, however in summary there are two main themes: governance and value for money. The most significant change is the requirement, from September 2019, for every authorised fund manager (AFM) to implement an ‘assessment of value’ test for all of their products. This will cover:
- Quality of service
- AFM costs
- Economies of scale
- Comparable market rates
- Comparable services
- Classes of units
This assessment must be carried out annually, with the results published for all to see and in a manner that is clear, fair and not misleading.
The structure of fund manager boards will also be changing, with a new requirement for a minimum of 25 per cent and/or two individuals to be independent directors. With the exception of the independents, directors will have to carry out the assessment while operating under the senior managers regime, which places greater responsibility and accountability on those at the top of financial services firms.
These rules are not due to be implemented until September 2019, but we expect a number of fund groups to start adopting them sooner rather than later. For some this will be a chance to take the moral high-ground, and others will be seeking the first pick of the estimated 480 independent directors required to fill the new roles. Either way, the direction of travel is clear, and it’s one advisers need to be aware of and consider carefully.
Advisers are more than used to conducting research and due diligence on any provider or asset manager they might be using on behalf of their clients. With these new rules coming in, we would suggest advisers might want to revisit their due diligence process in light of how a fund group is approaching these changes. Do you want to recommend your clients invest with firms who are embracing the new rules, or those who are seeking to avoid them?
These due diligence questions could also be extended to the wider questions of trust and credibility, as well as ethical preferences. As a business do you have a view on, for example, executive pay, the gender pay gap and socially responsible investing? If so, do you want to reflect this as part of your client proposition?
Investment solutions are evolving rapidly to offer a much more granular and personalised approach to asset allocation, such as the recent move by BlackRock to exclude firearm makers and sellers from some of their exchange-traded funds. It’s becoming increasingly possible to invest according to your clients' social and ethical preferences as well as from an investment suitability perspective.
If financial services is going to have any hope of moving off the bottom of the table of trusted sectors it’s going to require a concerted effort by all concerned. Asset managers are starting to help by offering more flexible investment solutions, and they are also getting the stick from the FCA to create a far more onerous governance procedure.
Advisers too have a part to play, and like asset managers we expect some will see it as a great opportunity to further differentiate themselves from the old untrusted past.